What You Need to Know about Credit Card Hardship Programs

Good intentions don’t pay credit card bills. It doesn’t matter how frugal and committed you are, if you can’t work and earn, your bills won’t get paid. It’s an unfortunate fact of life that millions of Americans have to deal with every single year, but there are some programs to make this period easier for you.

Credit card companies and other lenders are not there to make your life difficult. They want to get paid as quickly and completely as possible, and if that means making some alternative arrangements to account for your financial situation, they’ll be more than happy to do so. 

What is a Credit Card Hardship Program?

Hardship programs are used by most credit card companies. It may seem counterintuitive when you consider that they are for-profit companies, but they have run the numbers and determined that a little leeway here can benefit their bottom line in the future.

Their ultimate goal is to get back the credit they supplied you with. Any interest on top of this is a bonus. They know that refusing to offer any kind of assistance increases the risk of default, at which point the credit card debt will be sold to a collection agency for mere cents on the dollar.

A hardship program gives you more opportunities to repay, which minimizes the massive losses the creditor faces when they sell your debt cheaply to debt collectors. 

Who Offers Credit Card Hardship Programs?

Many lenders offer these services, but they’re not always vocal about them. Creditors want to talk with you directly when you’re experiencing any kind of financial hardship. Their goal, in the first instance, is to negotiate more manageable monthly payments, whether in the form of a repayment plan or reduced credit card payments.

If you explain your situation in full and make it clear that you’re experiencing financial hardship and can’t cover your monthly payment, they may refer you to their hardship program.

Remember that you’re the one who owes them money and it’s not their fault that you’re in financial hardship. Don’t simply refuse to pay and insist that they add you to a financial hardship program, because they are under no obligation to do so. It may be an unsecured debt, but it’s debt nonetheless and they can call in the debt collectors or file a judgment against you.

The ball is very much in their court and they’ll only be interested in helping you if they believe you’re worthy of that help and are not simply looking for an easy escape.

How Does Credit Card Hardship Help?

A hardship program can help you with credit card debt. These programs are offered by individual lenders, as opposed to debt management plans, which cover all lenders, and they typically aim to reduce one or more of the following:

  • Interest
  • Minimum Payment
  • Fees
  • Penalties

The creditor may also create a more manageable payment schedule. They can’t help with other debts, however. A credit card hardship program won’t reduce your mortgage payments, nor will it help with any loans that you have.

What are the Requirements for Credit Card Hardship Programs?

Hardship programs differ from creditor to creditor. But just like a debt management program, you need to be experiencing some kind of hardship, such as the loss of a job, an illness or injury, or a serious reduction in your income.

As noted above, these programs are offered by individual creditors and not by the financial sector on the whole. If you have multiple debts with many different creditors, you may be better suited to debt relief programs like a debt management or debt settlement program. These are offered by debt relief companies like National Debt Relief as well as credit unions and banks.

Debt consolidation can also help in this situation and all options can help with student loans and personal loans, as well as credit card debt. You don’t need a hardship letter to qualify or apply. This is generally limited to mortgages. For credit card debt, just give them a ring.

Pros and Cons of Credit Card Hardship Programs

Although a financial hardship program may seem like a win-win, it’s not without its issues. As with the requirements, these downsides will depend on the creditor and their specific program, but we have discussed some general pros and cons of financial hardship programs below.

What are the Advantages of Credit Card Hardship Programs?

The main advantage of a financial hardship program is that it can alleviate some of your responsibilities and take the burden of immediate debt obligations off your shoulders. The credit card provider will assess your situation and determine what you can and cannot pay.

They may reduce the interest rate or the monthly payment; they may create a repayment plan. In some cases, you may get an extended term, which means you pay more in the long-term but less in the short-term, much like you would with a debt consolidation loan.

What are the Disadvantages of Credit Card Hardship Programs?

Credit card hardship programs can adversely affect your credit score. They are not reported to the credit bureaus as such, but your creditor may include a note on your account that announces your inclusion in their hardship program. This note may put other creditors off and reduce your chances of acquiring further credit.

It only makes sense—if you’ve told one lender that you’re struggling financially and can’t afford to meet their repayments, then why would another creditor want to lend you money?

A financial hardship program may impact your credit report and credit score in other ways, as well. For instance, they may suspend your account, which will impact your payment history and your credit utilization ratio, which, combined, accounts for 65% of your total FICO Score.

Summary: Hardship Programs and Other Options

A hardship program isn’t the only option available to you, nor is it an option you should rush into. Don’t panic and dive in as soon as you suffer a little hardship. Give yourself time to better understand your situation, to budget properly and assess how difficult those payments will be, and then contact your creditor.

If they tell you that there is no hardship program available, hang-up and try again. Sometimes, they will try to push you towards negotiation or just simply refuse to provide any flexibility whatsoever. But you may get a different response from another member of staff while using a different approach.

If they insist that no hardship program is available, look into debt settlement, debt management, or debt consolidation. All options are viable for someone suffering from financial hardship and all can help to reduce your debts and obligations.